In a PriceWaterhouse Coopers’ note the company implies that the government can spur private investment in clean tech companies by providing tax credits:
Sectors granted long-term tax credit extensions in October 2008 also attracted the most VC investment. VC investment in solar nearly doubled, and investment in batteries (fuel cells) rose by about 22%; both solar and fuel cell sectors got 8-year extensions. Geothermal, which drew increased VC investment, likewise received an 8-year ITC extension (and greater leased acreage of federal geothermal property). By comparison, VC investment in wind (with a two-year extension) fell about 40% in 2008.
This is important to note, because a big part of government’s answer in the stimulus is for the Department of Energy to write out checks to promising alternative energy companies. Certainly it’s a good idea, as venture capital firms are scrambling to get cash, which means they can’t as easily invest in start-ups. However, as we argued (here, here) it’s probably a bad idea to let the government pick out start-ups for funding.
What else is on tap for the clean world in 2009? According to PWC, trouble for some companies and acquisitions:
Q: Which cleantech sectors have been hurt most by the collapse of the debt and equity markets? Clearly, companies in sectors with capital- intensive business models. Those looking to raise large expansion rounds of financing and those with long-time horizons to break- even operations will have difficulty raising additional capital, leading them to alternative financing sources like the DOE. One emerging trend is a shift by capital intensive cleantech businesses to a licensing model.
Q: What trends are expected in 2009? Stock market declines, the recession and restricted capital will lower cleantech company valuations in 2009. This may spur M&A activity by well-funded companies with strategic interests in clean technologies. Investors are likely to favour more capital- efficient investments, such as energy efficiency technologies.
Q: In terms of VC fund raising, what kind of potential investment overhang exists? Although VC fundraising dropped significantly in Q4 2008, limited partners still have substantial cash to invest, albeit less than a year ago. Even if 2009 fundraising continues slowly, annual 2009 fundraising may still be on the order of $20 billion. Capital efficient investments are likely to have better access to this capital; however, there are always opportunities for companies with the next big ideas. With deepening concerns over greenhouse gas emissions, one such area may be carbon capture and storage.